The Real Deal

Back in 1997, planning consultant Jim Kolva and his wife, Pat Sullivan, a social worker, wanted to live downtown, but they couldn't find any residences for sale.

"As an urban planner, I believe downtown is the heart of the city," he says. "Philosophically, I believe downtown's got to be strong for the city to be strong. And in order to be strong and vital, there must be people living downtown. If I teach that, then that's the way I should live."

Both aesthetically and historically, Kolva and Sullivan admired the city's stock of old industrial buildings. They began researching candidates for loft homes. After more than a year, they found the former Lambert's Candy warehouse on Adams Street, just north of the railroad viaduct. They sold their home on Sumner Boulevard and realized enough funds to buy the building on contract, leaving them the proud owners of a vacant warehouse and with no place to live. Making a virtue of necessity, they moved into the nearby Buena Vista apartments and started shopping around to finance the renovation.

"We figured we'd go to the bank and get a loan, no problem," Kolva says. "But we didn't have any luck. We had five or six rejections from the local banks."

Since loft living and downtown revitalization were hot topics around the country then, what made the bankers so reticent? First, no one in Spokane had attempted a similar project, so there was no comparable success on record. No one knew if tenants would pay market rates downtown. Second, Kolva may have owned the 16,000-square-foot building, but he didn't own the ground under it. The land was part of the railroad's original grant more than a century ago, so Kolva had negotiated a 10-year lease at $5,000 per year. The lease contained a clause giving the railroad the right to issue Kolva a 30-day notice to vacate the premises - i.e., remove everything, including the building, from the land - and that clause justifiably made bankers squeamish. In addition, Kolva's plans called for a total of six residential units, exceeding Fannie Mae's limit of four units to qualify for a residential loan. Any loan would therefore be ineligible for the secondary mortgage market, meaning that a bank would have to carry the loan in its own portfolio and bear a greater risk.

With access to conventional financing blocked, Kolva and Sullivan moved toward the unconventional. Each had owned a home prior to their marriage, homes they now ran as rentals.

"We refinanced those houses," Kolva explains. "That allowed us to build our unit to about 95 percent completion, enough to make it livable and decent."

Soon after moving in, however, the project hit another snag: Kolva received a notice from the railroad tripling his annual lease payment, with the payment due in less than a month. Fortunately, he also learned that the railroad was authorized to sell the land, so he negotiated to buy. At that point, with the equity established in the building and his own unit, he finally received a bank loan to buy the land and mortgage the building to help with construction. He has now completed five of the six planned residential units and one of two commercial spaces through a combination of lines of credit, and he's looking to consolidate the debt.

"Basically, we had to self-finance," he says. "I'm always juggling back and forth to make sure things are covered. We've financed some of it through credit cards. I'll get an offer for six months at 2.9 percent, so I've done that and for the most part have been able to pay it off within that 2.9 percent window. I've got one now at 5.9 percent fixed, and that's pretty decent. So you learn to be creative."

Finding people to pay the rents of $950 to $1,500 hasn't been difficult, either. The four finished apartments, ranging from 1,000 to 2,200 square feet, were rented before completion. Kolva, Sullivan and their tenants have forged their own community out of a neglected corner of downtown.

Kolva says he and Sullivan would do it all again in a heartbeat, even after the project has consumed nearly six years of their lives. "Oh, yeah, neither of us has any regrets," he says, although he admits that financing the project and serving as his own general contractor has been stressful. "Our bottom line is more than dollars and cents, though. There's pride in community and making a contribution. Maybe some other people wouldn't touch this project because they wouldn't get the return out of it. But for us, there's more to life than how much money you make."